Washington State Department of Financial Institutions

News Release

Thursday, April 02, 2009


Lyn Peters, Director of Communications
PH (360) 902-8731 lpeters@dfi.wa.gov

Michael E. Stevenson, Director of Securities
PH (360) 902-8797 mstevenson@dfi.wa.gov


Wachovia Agrees To Buy Back Auction Rate Securities and Pay Nearly $500,000 to Washington State in Penalties

Washington investors’ auction rate securities to be bought back at purchase price

OLYMPIA – The Washington State Department of Financial Institutions (DFI) agreed to a settlement with Wachovia including a penalty payment of nearly $500,000 and the buy back of auction rate securities from Washington investors who found themselves unable to sell the their securities. For details, read the consent order (PDF)*.

“We are pleased to see the problem for Washington investors resolved,” DFI’s Securities Director Michael Stevenson said. “Investors will be able to sell their Wachovia auction rate securities back to Wachovia.”

The Washington settlement is part of a multi-state agreement in which Wachovia agrees to pay a $50 million dollar penalty split among the states and buy back more than $8.5 billion in auction rate securities nationwide. Investors who purchased Wachovia auction rate securities products prior to Feb. 13, 2008 may be eligible for a buy back and should visit http://www.nasaa.org/regulatory-activity/enforcement-legal-activity/auction-rate-securities-information-center/ for more information.

Auction rate securities are preferred shares or debt instruments such as corporate or municipal bonds. They have a long-term maturity and are sold at weekly or monthly auctions, and until recently were sold by many brokerage firms as cash equivalent investments. In February 2008, however, the auction rate security market collapsed, bringing auctions to a halt. Wachovia customers were unable to liquidate their investments, contrary to alleged representations made about the product.

Wachovia allegedly misrepresented auction rate securities to customers as “safe” and “liquid” investments and failed to reasonably supervise their salespersons in the sale of the securities.

Stevenson signed a consent order for Washington March 24, 2009 with Wachovia Securities, LLC and Wachovia Capital Markets, LLC (collectively “Wachovia”), which is registered as a securities broker-dealer in the State of Washington. The order requires Wachovia to complete the repurchase of auction rate securities from Washington customers by June 30, 2009. Wachovia also agrees to pay $491,556.71 to Washington, which constitutes the State of Washington’s proportionate share of the $50 million penalty.

In signing the consent order, Wachovia neither admits nor denies the allegations.

The settlement stems from an investigation initiated by a multi-state task force of state regulators formed by the North American Securities Administrators Association (NASAA) that included participation by the Securities Division of the Department of Financial Institutions.

About Division of Securities
www.dfi.wa.gov/sd ▪ 360.902.8760 ▪ 877.RINGDFI (746.4334)
The Washington State Department of Financial Institutions Division of Securities set as its mission statement: "To protect the investing public and promote confidence in the capital markets."

This mission is accomplished through a variety of regulatory and enforcement tools, including:

About DFI
www.dfi.wa.gov ▪ 360.902-8700 ▪ 877.746-4334
The Washington State Department of Financial Institutions regulates a variety of financial service providers such as banks, credit unions, mortgage brokers, consumer loan companies, payday lenders and securities brokers and dealers. The department has won numerous awards for its financial literacy and outreach programs developed to protect consumers from financial fraud. In addition to posting information about licensees and administrative actions, the DFI’s Web site features consumer tips on a variety of financial fraud-related topics.